Forfeiture is when a landlord ends the lease due to the tenant breaching the terms of that lease by being in arrears with rent or by other significant breach.
Before taking action and taking possession of the property back, landlords are well advised to seek legal advice. If you are a tenant and want to avoid forfeiture or seek formal court relief from forfeiture, legal advice is also recommended. We are experienced in this area of law, so please do get in contact with our commercial property lawyers in our London offices.
Subject to the terms of the lease agreement (legal advice should be sought) a commercial lease generally cannot be forfeited by any other breach of the lease except non-payment of the agreed rent.
By far the most common circumstances for a Landlord to consider forfeiture of a lease is due to non-payment of rent. If a different breach of lease has occurred then the landlord should serve the tenant with a formal notice which should state exactly what that breach is and must give the tenant a set period of time to rectify the breach.
If the tenant complies with the notice and rectifies the breach within the set time period then the landlord’s right of forfeiture no longer stands but if the tenant continues to commit a breach of the lease the landlord can then pursue forfeiture of the lease through the court.
If the tenant is in genuine financial difficulties, a possible alternative to forfeiture of lease is to agree that the lease is surrendered by the tenant. This at least will avoid significant legal costs and possible delay.
Forfeiture and retaking possession is not always the best option and good legal advice is recommended. In some situations the Landlord may not be able to easily find a replacement tenant. There are other potential advantages and disadvantages of forfeiting a commercial lease in each different case.
There are certain requirements that the Landlord must satisfy before they can forfeit the commercial lease and consider retaking possession. These are:-
For more information on forfeiture of a commercial lease for non-payment of rent or otherwise or Section 146 Notices please feel free to contact our lease forfeiture specialist solicitors.
Whether Notice is served or not, the Landlord must make sure not to waive (lose) the right to forfeit the Lease. A waiver occurs when the Landlord is aware of the breach and performs an act which continues to recognise the existence of the Landlord and Tenant relationship.
A common example of this is accepting a partial payment of rent or service charge after a period of non-payment. By doing this, without further protecting the position,, if the pattern is repeated and the tenant is consistently late in paying rent there could be an argument that the previous course of conduct, where there is non-payment at the due time but then payment later, has resulted in the Landlord having waived the right to forfeit.
If the breach of Covenant is for non payment of rent then the Landlord must first demand the rent. If the rent is not received within a reasonable amount of time the Landlord may then re-enter and forfeit the Lease.
If, however, the breach is a breach of a covenant in the lease other than the payment of rent the Landlord must first serve a Notice under Section 146 of the Law of Property Act 1925.
A Section 146 Notice notifies the Tenant who is in breach of a covenant in the lease that the Landlord’s intends to forfeit the Lease. The Notice needs to clearly specify what the breach is and if it is something that is remediable then the Notice must allow the Tenant to remedy the breach together with appropriate financial compensation to the Landlord.
Forfeiture is not straightforward. Whilst some landlords will seek to forfeit by simply changing the locks without a court order, this is highly risky, and may result in an expensive application being made to court for relief from forfeiture by the tenant plus a possible damages claim for loss of business or damage to business.
Legal advice should be sought. Generally, a landlord wishing to forfeit the lease of his property will need to apply to the court to obtain an order to authorise the forfeiture.
There are situations where tenants find that locks have been changed at commercial premises. In that situation they may decide to apply for relief from forfeiture. Any application to court needs to happen as quickly as possible and to decide on what grounds to apply. If the Landlord has wrongly locked you out and you suffer losses to your business, you may be able to claim damages. However, don’t assume this will always be straightforward as you will need clear evidence of loss and attempts to mitigate any loss.
As a tenant you may argue that the Landlord is in breach of the lease which is why you withheld part or all of rent or that the landlord has waived any breach by you or failure to pay rent. If the Landlord has served you with formal notice of intention to forfeit and re-enter for non-payment of rent, you should not simply ignore this.
Obtaining solicitor legal advice on the best way to respond is always important because if you ignore the situation and then have to apply for relief later, you may well end up paying significant legal costs.
Get in touch with our solicitors if you need legal advice, either as Landlord or Tenant, in relation to forfeiture, surrender of a lease or issues relating to relief from forfeiture.